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Vietnam tax changes impacting globally mobile employees

In an ever-changing tax landscape, we are pleased to share the latest and important regulations and tax policies taking place in Vietnam that will affect your globally mobile employees.

These include:

Determining which expatriates are subject to compulsory social insurance contributions

On 18 March 2019, the Vietnam Ministry of Labour, War Invalids and Social Affairs provided guidance under the Official Letter 1064/LDTBXH-BHXH for individuals who are subject to compulsory social insurance under the provisions of Decree No.143/2018/ND-CP.

According to this guideline, expatriate workers are subject to compulsory social insurance only when following conditions are satisfied:

  • They have a work permit, practice certificate or a practice license issued by a competent Vietnamese authority.
  • They have an indefinite term labour contract or a contract lasting a year or more with employers in Vietnam.
  • They are under 60 years of age for male and under 55 for female.
  • They are not subject to an internal transfer within the enterprise as stipulated in Clause 1, Article 3 of Decree No. 11/2016 / ND-CP.
    This provision gives more specific guidance to authorities in the application of new regulations on compulsory insurance participation for expatriates.

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Changes to Personal Income Tax (PIT)

PIT for share transfer of individuals in joint stock companies (JSC) – The Vietnamese General Department of Taxation issued Official Letter No. 1211/TCT-DNNCN on 4 April 2019 guiding tax policies for shares transfer of individuals in JSC. Based on the PIT regulations, enterprise law and securities law, ‘share’ is a form of ‘stock’. This means that transferring capital in a JSC is defined as income from securities transfer and individuals must declare and pay PIT at 0.1% rate.

Guidance on allocation of reduced PIT in 2018 of employees in economic zones – The General Department of Taxation also issued Official Letter No. 1285/TCT-DNNCN on 8 April 2019 guiding how to determine the PIT reduction of employees working in an Economic Zone (EZ) during PIT finalisation 2018.

In 2018, the regulation on 50% PIT reduction for employees working in an economic zone was abolished under Decree No. 82/2018/ND-CP. This means that employees in the economic zone are only entitled to a reduction of PIT from 1 January 2018 to 9 July 2018, no reduction is applicable after this date. Employees working in an economic zone will now have to pay 100% PIT and are no longer able to benefit from the same incentives as before.

The official letter guides how to calculate the PIT amount to be reduced in 2018 for employees working in an Economic Zone as follows:

Vietnam PIT calculation2.png

In which:

  • Total PIT payable in a year is based on taxable income from wages and salaries arising in the tax calculation year in accordance with the law on PIT.
  • Total taxable income in the tax year is taxable income from wages and personal salaries, including income received inside and outside an economic zone.
  • During implementation, if any problems arise in determining the criteria in the allocation formula, enterprises may consider getting confirmation from local tax authorities before implementing in order to mitigate future risk.

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Increasing basic salary from 1 July 2019

The Vietnam Government has recently issued ‘Decree No. 38/2019/ND-CP’. The Decree (which regulates the increase of basic salary for civil servants, officials and armed forces) took effect from 1 July 2019 and replaces Decree No. 72/2018/ND-CP.

Businesses should pay attention to adjusting a new insurance cap, minimum wages and benefits based on the new basic salary to ensure compliance with the law.

The full June 2019 tax update from Grant Thornton Vietnam is available in English, Vietnamese and Japanese.

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